Jumping into the stock market now for the first time is a mixed bag. Though stock values have fallen over the past week, we've thus far avoided the big market crash so many people were talking about earlier this year. On the other hand, a lot of stocks are still overvalued, and if you're investing on a budget, that could prove challenging.
Ultimately, your best bet as a new investor is to develop a strategy that accounts for your goals and appetite for risk. You'll also want your strategy to build in some protection against market downturns. With that in mind, here are three investments it pays to consider if you're new to the game.
1. S&P 500 index funds
Index funds are passively managed funds that aim to match the performance of the market index they're tied to. They won't help you beat the market, but they'll allow you to benefit when the market does well.
S&P 500 index funds, meanwhile, are funds that invest in the 500 largest publicly traded companies. Here's what that means. First, you'll get a solid mix of stocks by buying S&P 500 index funds, and a diverse portfolio can protect you in the face of market crashes. Secondly, you'll get to invest in many proven companies with a strong performance history. In fact, the S&P 500 itself has a solid history of serving investors well, so it's a good choice when you're new to the stock market and aren't exactly sure how to vet individual stocks.
2. Fractional shares
As a new investor, you may want to pump money into your portfolio slowly and methodically. As such, you may be inclined to steer clear of stocks with a dauntingly high share price. But thanks to fractional shares, you can invest in the companies you want without paying a fortune.
Fractional shares allow you to buy a portion of a share of stock if you don't want to pay for a full share (or can't swing a full share). The upside here is that you'll get a chance to build a diverse portfolio on what may be a limited budget to start with.
3. Dividend stocks
Dividend stocks allow you to generate regular income in your portfolio without having to do a thing. From there, you can use that money as you want or reinvest it to grow additional wealth.
Dividend stocks are a great way to protect yourself in the face of market downturns. Even when stock values decline, companies with a solid history of paying dividends tend to keep paying. To get started with dividend stocks, you can check out this list of dividend aristocrats, which are S&P 500 stocks that have raised their dividend every year for at least the past 25 years. Many of the companies on this list have been around for a long time and make for relatively stable investments.
Investing in stocks for the first time can be scary -- but with the right strategy, it doesn't have to be. If you're not sure where to put your money, start with S&P 500 index funds, fractional shares, and dividend stocks, and then take it from there. The great thing about investing is that your strategy can easily evolve over time. The key, however, is to get the ball rolling.